World Retail Banking Report 2007

Transcription

07
WORLD RETAIL
BANKING REPORT
Contents
4
Pricing Index
28
Transforming Operating Models in Retail Banking
57
Appendix: Methodology
62
About Us
Preface
Capgemini, ING, and the European Financial Management & Marketing Association (EFMA) are proud to
present this study of the global retail banking market. For the fourth consecutive year, it provides the financial
services community with overviews and insights into the industry’s dynamics, with special attention to the
pricing structure and how it is evolving.
The geographic scope of this year’s pricing index and spotlight has been expanded to five new countries: Croatia,
India, Japan, Romania, and South Africa, and now includes 25 countries. The number of banks studied has risen
from 142 to 180.
This 2007 edition of the World Retail Banking Report continues our investigation into the worldwide pricing
of day-to-day banking products and services, presenting our findings on a yearly pricing index. In addition, we
provide dashboards of each country’s national banking industry on our web site, www.wrbr07.com. In response
to the widespread adoption of packaged offers within the banking industry, we have paid special attention to this
method of selling banking products in the following seven countries: Austria, Belgium, France, Germany, Italy,
Poland, and Slovakia.
As in earlier editions, our 2007 report presents a spotlight section highlighting a major trend in the retail banking
industry. This year we focused on “Transforming Operating Models.” In a constantly changing and competitive
marketplace, managers in the industry are seeking ways to optimise their operating models. Based on interviews
with banking executives across the world, we have assessed the major trends in retail banking’s current and
future operating models, and offer the results here.
We are delighted to publish the 2007 edition of the World Retail Banking Report. We hope and trust that its
findings will stimulate debate and provide retail bankers with information they need to make informed and
effective strategic and operational choices.
Bertrand Lavayssière
Managing Director
Global Financial Services
Capgemini
Patrick Desmarès
Secretary General
European Financial Management
& Marketing Association
Dick Harryvan
Member of the Executive Board of ING Group
Global Head of ING Direct
ING Group
Pricing
Index
PRICING INDEX KEY FINDINGS
This year the average price of core banking services across the 25 study countries, based on the
local active customer profile, was €77.
The average price fell slightly from last year (down 0.3%), but price changes by geographic area
ranged from a 1.8% decrease in the eurozone to a 2.9% increase in the Asia Pacific region.
Spain’s average price decreased by 31%, the sharpest decline of any individual country, as the
pioneer SCH launched “zero commission campaigns” and most large banks followed suit; fees
there were sharply cut in account management (down 81%) and payments (down 15%) compared
to 2006.
Eurozone banks continue to price in a narrower range than banks in the other regions surveyed,
and they appear to be reinforcing the trend towards greater convergence.
Account management prices decreased (down 7%), but increased in payments (1%), cash
utilisation (4%), and—the biggest mover—exceptions handling (7%).
Banks appear to be using day-to-day pricing strategies to influence consumer behaviour rather
than to increase revenues; banks cut online and call centre fees, for instance, and raised desk
operation fees, pointing customers towards automated channels for common operations.
4
Electronic products accounted for approximately 63% of this year’s total pricing index, compared
to last year’s 64%. Although prices for electronic payments decreased by 3% in the Single Euro
Payment Area (SEPA) over 2006, they are still 21% higher than in the rest of the world; however,
because the SEPA effort is promoting transparency and convergence, retail banks are likely to
continue reducing prices for electronic payments products.
In the seven countries of the package analysis, packages include half of core banking products
on average. In Germany, Belgium, and Austria they contain more than half of these products,
but significantly fewer in France, Italy, Poland, and Slovakia.
In Austria, Italy, France, and Slovakia, non-core banking products are also included in packages,
e.g. long-term fixed-price guarantees, discounts on overdraft interest, and payments insurance
protection.
When buying packages, customers in countries with the highest proportion of non-core banking
products get the highest discounts, but consumers might use these products only infrequently.
2007 WORLD RE TAIL BANKING REPORT
5
METHODOLOGY
For the 2007 report, we have expanded the geographic
scope of the pricing index and spotlight to 25, adding
5 new countries—Croatia, India, Japan, Romania,
and South Africa. The number of participating banks
rose from 142 to 180 (see Figure 1.1). Like last year’s
methodology, we make comparisons across four regions:
Asia Pacific, Europe eurozone, Europe non-eurozone,
and North America.
We analysed prices by geographic region, and we
have provided data when the region comprised a
minimum of two countries. As a result, the Africa
region does not appear on the graphs, even though
the South Africa data is considered in the analysis.
FIGURE 1.1
Region
Countries in
2006 WRBR
Number of
Banks
New Countries in
2007 WRBR
Number of
Banks
Banks Surveyed in 2007
Europe
eurozone
Europe
non-eurozone
Austria
6
Belgium
4
France
11
Germany
7
Ireland
5
Italy
6
Netherlands
6
Portugal
6
Spain
18
Czech Republic
5
Croatia
7
Norway
6
Romania
9
Poland
11
Slovakia
7
Sweden
6
Switzerland
7
UK
5
Canada
6
US
9
South Africa
4
North America
Africa
Australia
5
India
9
China
9
Japan
6
5
35
Asia Pacific
Sub-Total
20
TOTAL countries/banks
6
145
25/180
We collected all data for the 2007 edition of the
World Retail Banking Report during the last three
months of 2006.
Like last year, we continue to focus on four categories
of banking products and services: account management,
payments, cash utilisation, and exceptions handling.
Figure 1.2 shows the components of each category.
We identified three consumer banking usage patterns
at both local and global levels: less active, active, and
very active (see Figure 1.2). The local profiles indicate
what a country’s consumers at these frequency-of-use
levels pay for their day-to-day banking services. The
global profile, in contrast, applies to all banks in all
countries. This is the only practical way we can generate
a meaningful comparison of prices around the globe.
Scope of Products and Services in the Global and Local Pricing Indexes
FIGURE 1.2
Retail Banking Products and Services
Global Profile: Frequencies of Use
Scope of WRBR
Core day-to-day
banking needs
Less
active
Active
Very
active
Current account
1
1
1
Online banking
0
12
52
Call centre
0
4
12
Cash deposit at desk
0
1
3
Cash deposit at ATM
0
0
0
Withdrawal at desk
0
2
3
Withdrawal at bank’s ATM
12
24
60
Withdrawal at other banks’ ATM network
12
36
60
Debit card stop payment
0.2
0.2
0.2
Cheque stop payment
0
0.2
0.2
Document search
0
0.1
1
Banker’s draft (cashier’s check)
0
0.2
0.2
Cheque
1
3
6
Debit card
1
1
1
Credit card
0
1
1
Internal wire transfer
2
5
6
External wire transfer
1
2
5
Standing order (regular amount transfer)
0
12
36
Direct debit
0
12
24
Products and services detailed
Core day-to-day banking needs

Account management
Cash utilisation
Exceptions handling
Payments
Savings
Account
Management
Cash Utilisation
Certificates of deposit
Mutual funds
Other savings vehicles
Credit

Exceptions
Handling
Overdrafts
Consumer credit
Revolving credit
Mortgages
Loans
Other products & services
Insurance
Real estate
Concierge services
Payments
Source: Capgemini analysis.
7
PRICING ANALYSES
Prices fell slightly on average
We reviewed pricing profiles on two levels, local and
global. Following our usual pattern, we begin with the
local profile pricing index, and consider the global
index later.
Local active users pay an average of €77 a year for their
day-to-day banking needs. As Figure 1.3 illustrates,
price levels varied from one region to another this
year, ranging from €44 in Asia Pacific to €84 in
Europe non-eurozone.
Banks are now taking two pricing approaches.
First, as exhibited in the eurozone, some banks are
not making a large distinction between customer
profiles, and prices paid by the different user patterns
are relatively close to each other: very active users are
charged only twice the price paid by less active users.
Second, as in the other regions we studied, the
distinction between profiles is greater: in Asia Pacific,
North America, and Europe non-eurozone, very active
users pay four to five times the price paid by less
active users.
The average price that the less active user of bank
products and services paid was €39, compared to
the very active user’s much higher €136. While
entry-level prices were comparable among the
four geographic areas, upper-level prices varied
considerably. On average, very active users paid
FIGURE 1.3
three times the price paid by less active users.
Again, these are averages, and the situation
varies by region.
Local Profile Prices in 2007
Annual prices of core banking services by geographic area and usage pattern, 2007 (€)*
196
200
180
160
147
136
140
120
104
96
100
84
80
72
77
72
Average
€77
60
40
45
46
44
39
35
20
19
0
Europe
eurozone
Europe
non-eurozone
North America
Asia Pacific
Average
Source: Capgemini analysis, 2007.
* The lower, central, and upper numbers of each bar respectively indicate the average price charged in countries of a given geographic area, for the less active (bottom number),
active (middle number), and very active users (top number). The average was calculated among all countries’ indexes for active users.
8
Prices for active users averaged 0.3% below last year.
At the same time, less active users' prices remained
stable and very active users’ prices fell by 2.2% (see
Figure 1.4). It appears that banks are trying to attract
high-frequency users.
Figure 1.4 also indicates that this apparently stable
average hides variations from one geographic area
to another.
The biggest increase was in Asia Pacific, where the
average price went up by 2.9%. Australian banking has
been following a trend towards packaged transaction
accounts and away from unbundled services. Some
banks in that country have lowered fees for packages
and raised fees on traditional accounts to encourage
customers to switch to packaged transaction accounts.
The price of exceptions handling also rose significantly
in Asia Pacific, by 3.9 € compared to last year’s price
(see Figure 1.5).
FIGURE 1.4
The biggest price decrease was in the Europe eurozone
(down 1.8%), where prices in Spain dropped by 31%—the
largest price cut this year. SCH, a pioneer in a bid to
win market share, launched “zero commission
campaigns” and decreased its price levels by 65%.
Most of Spain’s large banks followed suit, cutting
their prices by 15%-60%. Fee cuts in account
management (down 81%) and payments (down 15%)
were also recorded. However, this reduction affects
only clients who deposit the majority of their assets
in the banks that decreased their prices.
Without Spain, the eurozone price increased by
1.9%. The rise results primarily from higher fees for
operations at branches, including 7% more for cash
deposits at desk and 8% more for withdrawals at desk.
Evolution of Local Profile Prices, 2006 - 2007
Average price evolution, 2006-2007 (%)
2.9%
3%
2%
1.3%
1%
0.0%
0%
-0.3%
-1%
-2%
-1.8%
-3%
Europe eurozone
Europe non-eurozone
North America
Asia Pacific
Average
Note: Excludes new countries in 2007 WRBR (Croatia, India, Japan, Romania, and South Africa).
9
In Europe non-eurozone, prices increased by 1.3%.
Although fees in account management dropped,
along with online banking fees (down 25%) and
call centre fees (down 6%), prices for cash utilisation
rose, particularly due to higher prices in withdrawals
at desk (up 21%). The clear implication is that banks
are trying to discourage customers from using the
branch channel.
switch banks and more likely to further consolidate
accounts, which lowers costs. The bank can then
reduce prices. The third and final reason is that
technological innovations help lower fees. Automated
clearing houses and “time-order posting” of credits
and debits, for example, allow banks to lower fees, and
banks may get higher yields since clients end up paying
overdraft fees or penalties for insufficient funds.
In North America, prices remained stable. This stability
results from some apparently contradictory trends.
In Canada, banks are raising cash utilisation and
payments fees. To avoid high charges, consumers
reduce their transaction frequency by transferring
bigger amounts at a time. Furthermore, they are
encouraged to use packaged products.
In the US, account management and payments fees
declined for three major reasons. To begin with,
competition has substantially increased, both between
retail banks and with non-traditional competitors
(brokerage houses, retailers, etc.) that now accept
deposits. This competitive landscape has forced prices
down. Second, US banks are taking a longer term view,
seeking a virtuous circle. As clients purchase a larger
number of a bank’s products, they are less likely to
FIGURE 1.5
Evolution of Local Active Profile Prices, by Product and Service Category, 2006 - 2007
Average price evolution, 2006-2007 (E)
4
Europe eurozone
2
0.0
4
Europe non-eurozone
2
1.2
0.8
0.2
0.2
0
0
-0.1
-2
-2
-1.5
-4
-4
-6
-6
Account
Management
4
Cash
Utilisation
Exceptions
Handling
Payments
Account
Management
1.9
Cash
Utilisation
Exceptions
Handling
Payments
3.9
4
North America
2
Asia Pacific
2
0.6
0.2
0.0
0
0
-0.2
-0.4
-2
-2
-4
-4
-6
-0.7
-6
Account
Management
Cash
Utilisation
Exceptions
Handling
Payments
Note: Excludes new countries in 2007 WRBR (Croatia, India, Japan, Romania & South Africa).
10
-2.2
Account
Management
Cash
Utilisation
Exceptions
Handling
Payments
EUROZONE IS STILL THE
MOST HOMOGENEOUS ZONE
Figure 1.6 illustrates the price discrepancy we found
around the regions’ average price for day-to-day
banking services from 2005 through 2007. A minor
discrepancy means that a region’s prices are close to
the average and relatively homogeneous, while a larger
discrepancy indicates that price levels vary greatly
among banks in a region. Figure 1.7 illustrates how
country prices are spread around the country average.
In our 2005 and 2006 reports, we noted signs of price
convergence in the eurozone. For this year, as Figure 1.6
illustrates, price discrepancies in the overall eurozone
banking community keep descreasing compared to
2006. The trend towards convergence is confirmed.
FIGURE 1.6
Price Discrepancy in 2005, 2006 and 2007 for the Local Active Profile
Price discrepancy among all banks of each geographic area, 2005, 2006, 2007 (%)
100%
90.6%
90%
82.0%
84.2%
80%
70%
60%
52.9%
50%
51.6%
55.9%
53.9%
48.8%
50.6%
43.3%
40.0%
40%
36.8%
30%
2005
20%
2006
2007
10%
0%
Europe eurozone
Europe non-eurozone
North America
Asia Pacific
Note: Excludes new countries in the 2006 (Ireland) and 2007 (Croatia, India, Japan, Romania and South Africa) editions.
Discrepancy in North America decreased from 2005 to 2006 in WRBR 2006, while increasing in this edition because of recalculation based on a new scope for the US banks.
11
Banks in Europe typically price in a much narrower range
than banks in the other regions surveyed, and eurozone
price levels are the most homogeneous. As Figure 1.7
indicates, prices remain the most homogeneous in the
eurozone. Seven out of the region’s nine countries
recorded a below-average discrepancy this year.
In Europe non-eurozone, prices are getting more
homogeneous. Price discrepancy decreased by 3%
this year. We will continue to monitor this trend to
determine whether prices remain on a converging
path. At the country level, with three exceptions,
prices are quite homogeneous.
FIGURE 1.7
Price Discrepancy in the Local Active Profile
Price discrepancy among banks for each country, 2007 (%)
92%
95%
85%
75%
65%
61%
55%
55%
54%
43%
45%
35%
30%
30%
25%
17%
14% 16% 12%
14%
15%
20% 19% 19%
25%
19%
10%
6%
Europe non-eurozone
North
America
India
China
Australia
US
Canada
UK
Switzerland
Sweden
Slovakia
Romania
Poland
Norway
Czech Republic
Croatia
Spain
Portugal
Netherlands
Italy
Ireland
Germany
France
Belgium
Austria
Europe eurozone
12
9% 9%
5%
5%
-5%
Average
27%
25%
Asia Pacific
South Africa
26%
Japan
35%
Africa
PRICING STRATEGIES TO
DRIVE CONSUMPTION PATTERN
Exceptions handling (up 7%) and cash utilisation
(up 4%) exhibited the highest price increases. On a
global scale, exceptions handling and cash utilisation
were the categories with the most significant price
variation (see Figure 1.8). Exceptions handling is
often subject to the highest price increases, and as
Figure 1.9 illustrates, all components of this category
increased. But the impact of exceptions handling on
the total price of day-to-day banking is the lowest, so
its increase had a relatively small effect on that figure.
As for cash utilisation, fees for withdrawals at desk
rose by 13%, and fees for withdrawals at other banks’
ATMs went up by 2%.
Payments prices increased by 1%. While the price for
cards dropped a bit, other payments fees increased.
All types of transfer rose: internal and external wire
transfers, standing orders, and direct debits.
FIGURE 1.8
Global Average Price Variation, by Product and Service Category, for the Local Active User, 2006-2007 (%)
10%
7%
4%
5%
1%
0%
-5%
-7%
-10%
Account Management
Cash Utilisation
Exceptions Handling
Payments
13
Those increases were counteracted by a drop in the
second major fee source, account management, for
which prices decreased by 7% this year. This category
benefits from a bank strategy of multi-channel pricing.
From a product and service perspective, the largest
decreases were in call centre (down 10%) and online
banking fees (down 14%).
Banks are visibly trying to redefine their interactions with
customers, directing them towards automated channels
for common operations and reserving branches for more
advanced services. In all four categories, banks are
raising prices for operations at desk and cutting
non-branch-based prices.
Product and Service Variation for the Local Active User, 2006-2007 (%)
FIGURE 1.9
166%
20%
139%
15%
13%
13%
11%
10%
9%
7%
5%
5%
4%
1%
1%
2%
1%
0%
Account
Management
Exceptions Handling
Payments
Direct debit
Standing order
External wire transfer
Internal wire transfer
Cheque
Bankers' draft
Document search
Cheque stop payment
Debit card stop payment
Withdrawals at other banks’ ATMs
Withdrawals at banks’ ATM
Withdrawals at desk
Cash deposit at desk
Cash deposit at ATM
Cash Utilisation
14
-3%
-11%
Online banking
-20%
Current account
-15%
-10%
Call centre
-10%
-3%
Credit card
-4%
-5%
Debit card
-1%
These pricing model variations have different root
causes. A change in a single product’s price might
explain it — for instance, the sharp decline in online
banking fees in Poland, and the steep rise in wire
transfer fees in Germany. In Slovakia, changing the
contents of a package had a serious ripple effect —
when a product is added to a package, that product’s
price falls, decreasing its impact on the total price of
day-to-day banking in that country. In Spain, a sharp
cut in fees for current account and payments had
a strong impact on the overall pricing structure.
NO INTERNATIONAL,
HOMOGENEOUS STRUCTURE
As Figure 1.10 illustrates, price structures still vary
substantially across national boundaries, and no simple
pricing model emerges from an analysis of the data.
For four of the twenty countries sampled both this
year and last year, significant changes occurred in the
pricing model. In Germany, Spain, Slovakia, and
Poland, payments and cash utilisation’s part in the
total price increased, offset by a decrease in account
management’s portion.
FIGURE 1.10
Source of Fees for Core Banking in 2007
Components of average annual price of core banking services by country, 2007 (%)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
Europe eurozone
Europe non-eurozone
North
America
Asia Pacific
South Africa
Japan
India
China
Australia
US
Canada
UK
Switzerland
Sweden
Slovakia
Romania
Poland
Norway
Czech Republic
Croatia
Spain
Portugal
Netherlands
Italy
Ireland
Germany
France
Belgium
Austria
0%
Africa
Payments
Exceptions
Handling
Cash
Utilisation
Account
Management
15
New Countries in 2007 WRBR
Japan
Japanese banks’ pricing approaches are traditionally
indirect revenue-based (lower right quadrant of Figure
1.11). However, banks there are now trying to move
towards a transaction-based approach (upper right
quadrant), and adjust fee levels to the appropriate
standard by providing more value-added services
to retail customers.
Today, payments account for almost 90% of day-to-day
banking’s total price in Japan. Account management
and exceptions handling are not a factor, because
personal cheques are not widely used.
Japanese bankers rely on innovation to enlarge market
share. Large banks, for instance, have introduced
mobile phone payments to capture the younger
generation. Small banks, however, find it hard to
keep up with new technology and so form alliances
with other banks. In a relatively fragmented market,
we expect further consolidation through M&As and
organisation integration by bank holding companies.
This could have an impact on fee structures.
India
Banking customers in India incur most of their
day-to-day banking fees in payments and exceptions
handling, as these categories account for 90% of that
country’s total price.
With a very small proportion of banking clients
compared to the total population, all market participants
have a huge opportunity to tap into India’s very
fast-growing customer base. This has led to intense
competition to acquire customers. Banks have been
expanding their reach by installing more and more
ATMs, and most of the customer-facing staff in bank
branches perform double-duty as customer-service
agents, as well as counsellors for other financial
products such as mutual funds and insurance.
16
South Africa
South African bankers have adopted both
transaction-based and package-based approaches
(see Figure 1.11). The payments category, meanwhile,
represents the highest proportion (over 60%) of the
South African price profile.
A large majority of South African bank users are
low-income earners who use hybrid transaction-based
accounts that do not offer cheque-payment facilities.
For comparability purposes, therefore, we focused
on current account holders—middle- to high-income
earners. Although this segment represents only about
20% of South Africa’s banking population, it accounts
for almost half of the country’s bank revenue.
Croatia
Bank pricing approaches in Croatia are mostly
transaction-based (Figure 1.11), with payments
accounting for approximately 60% of the total
day-to-day banking price. Exceptions handling
is almost nonexistent.
Croatia is in the process of aligning monetary
legislation and regulations to EU requirements.
New branches and ATMs are being opened in the
northern and eastern parts of the country, while the
biggest concentration remains in its large urban areas.
Romania
Romanian banks have generally adopted transactionbased pricing approaches (Figure 1.11), with fixed
fees per transaction, depending on the amount.
Today’s revenue structure is relatively balanced
between payments, cash utilisation, and account
management, each accounting for about 30%.
Internet banking is not yet widespread, but it is
increasing fast, enabling customers to forego the
branches. Future pricing approaches are likely to
direct customers towards automated channels for
common operations, reserving branches for more
advanced services, as observed globally.
FIGURE 1.11
Four “Pure” Approaches to Pricing
ACCOUNT-BASED
TRANSACTION-BASED
A range of fees is applied to account management:
Could be based on balance to ensure relative stability
or increase non-interest-bearing deposits
Fees are applied to transactions, often including any form of:
– Debit (check, money transfer, point-of-service purchase,
ATM withdrawal) or credit (deposit at desk, deposit at an
ATM, etc.)
Fees consist of a fixed amount per transaction, a percentage
of the transaction amount, or both:
– A free-of-charge limit may exist; transactions across
service channels are aggregated for each statement cycle,
and when the transaction limit is exceeded, the customer
is charged accordingly.
All other P&S are linked to the current account:
Must open a current account before getting day-to-day
banking products and other financial products (savings,
credit, mortgages)
P&S pricing is based on current account balance
PACKAGE-BASED
INDIRECT REVENUE-BASED
Similar to account-based
account-based model,
model, except
exceptthat
thatthe
thebank
bank
charges an annual fee for a suite of services, rather than just
just
an account:
an account:
– Fees/commissions are directly linked to the bank’s ability
to increase cross-selling rates
A majority of day-to-day banking is free of charge
Income is generated by other types of products, such
as credits and savings:
– Interest spread on credits, as well as a commission
to set up credit
– Interest spread on savings, as well as fees to manage
savings account
For the 25 countries we studied this year, payments
represents the most important part of the total
day-to-day price of banking services, accounting for
53%. Account management was next at 22%, followed
by cash utilisation at 15% and exceptions handling
at 10%. Compared to our 2006 findings, account
management fees as part of the core price of banking
dropped by 1.9%, while the other three categories all
increased: cash utilisation (0.8%), payments (0.8%),
and exceptions handling (0.3%).
Despite the fact that we found no standard pricing
model that applied globally, several trends can be
observed when examining data from the last three years.
FIGURE 1.12
Components of Average Annual Price
of Core Banking Services, by Category
of Products and Services in 2007 (%)
Cash
Utilisation
15%
Exceptions
Handling
10%
Payments
53%
Account
Management
22%
On a region-by-region basis, Asia Pacific’s increase
in the proportion of exceptions handling and cash
utilisation fees in the total cost of core banking was
offset by a decrease in account management.
17
In the Europe eurozone, meanwhile, the decrease
in account management fees’ influence on core price,
due to a big price cut in Spain, was counterbalanced
by an increase in payments and exceptions handling’s
portion of the total price.
In Europe non-eurozone, the impact of payments
fees on core pricing decreased, offset by an increase in
account management, due mainly to a rise in online
banking fees in one country and current account fees
in another.
Finally, in North America, the trend towards free
account management observed last year prevails, but
this phenomenon is offset by an increase in the impact
payments and exceptions handling fees had on the
core banking price.
FIGURE 1.13
Evolution of Fee Sources for Core Banking in 2005, 2006, and 2007
Components of average annual price of core banking services, 2005, 2006, and 2007 (%)
100%
90%
80%
47%
49%
51%
70%
55%
51%
52%
55%
59%
58%
6%
6%
35%
35%
44%
44%
24%
25%
44%
60%
50%
5%
6%
40%
6%
6%
7%
7%
30%
20%
9%
17%
42%
10%
16%
10%
5%
18%
10%
33%
38%
36%
10%
18%
22%
0%
6%
2005
2006
2007
Europe eurozone
2005
2006
2007
Europe non-eurozone
2005
2006
1%
2007
2005
North America
Note: Excludes new countries in 2006 (Ireland) and 2007 WRBRs (Croatia, India, Japan, Romania, and South Africa).
18
14%
15%
16%
15%
2006
2007
Payments
Exceptions Handling
22%
20%
0%
26%
Asia Pacific
Cash Utilisation
Account Management
Even though prices for electronic payments decreased
by 3% in the eurozone, they are still 21% higher than
in the rest of the world, where consumers are charged
an average of €37 for electronic payments.
SINGLE EURO PAYMENTS AREA (SEPA):
TOWARDS CONVERGENCE
Like last year, we examined the possible effects of
the Single Euro Payments Area (SEPA) initiative.
We calculated the price of electronic payments means
that SEPA will affect, including debit cards, wire
transfers, and direct debits. To be consistent, we
added fees for current accounts, which are required
for electronic payments.
This has to be counterbalanced by the fact that the
drop in Spain’s current account price this year decreased
electronic payments’ part in the total price.
Nevertheless, because the SEPA effort is promoting
transparency and convergence, retail banks are likely
to continue to reduce prices for electronic payments
products.
In 2007, consumers in the SEPA area (same as Europe
eurozone) paid an average of €45 for electronic means
of payment, compared to €47 in 2006. Electronic
products in 2007 accounted for approximately 63% of
the total pricing index, whereas last year’s proportion
was 64%. Banks are lowering fees for electronic
payments products in an effort to move customers
towards these alternatives instead of traditional
payments products.
FIGURE 1.14
Price of Electronic Payment Means for the Local Active Profile, 2007
Aggregated cost of current account, debit card, internal and external wire transfers, direct debit, 2007 (€)
100
90
87
85
77
80
e €45
rozon
g e Eu 2 0 0 6
Avera
in
7
vs . € 4
67
70
60
55
55
o
of the w
e Rest
6
Averag s. €3 9 in 20 0
€ 37 v
54
51
rld
49
50
44
42
40
41
41
37
32
32
31
30
18
20
29
21
18
17
13
10
4
3
X
Y
0
A
B
C
D
E
F
G
H
I
J
K
L
M
N
Europe eurozone
O
P
Q
R
S
T
U
V
W
Rest of the world
Note: 2006 figures have been recalculated according to 2007 frequency pattern and exchange rate.
19
STILL UNEQUAL CONSUMERS
On a global scale, the price consumers paid for
day-to-day banking products and services averaged
0.74% of a country’s GDP per capita in the 25
countries studied this year (see Figure 1.15). When
considering the twenty countries sampled both this
year and last year, the average remained at 0.4%, as
in the 2006 edition.
This finding confirms that banking services
generally follow the standard industrial development
pattern — that is, the proportion of GDP per capita
allocated to banking services generally declines as an
economy matures.
Some countries, however, stand as exceptions to this
rule. In India, for instance, banking services are relatively
inexpensive, while in Croatia, prices remain high.
Local Profile Prices versus GDP per Capita
FIGURE 1.15
Cost of core banking services as a percentage of GDP per capita, by country, 2007 (%)
Percentage of a country’s GDP per capita
paid for core banking services (%)
2%
Country
1%
0%
0
10000
20000
30000
40000
50000
60000
GDP per capita (E)
20
GLOBAL PROFILE
No Major Price Variation
Unlike the local index, which reflects local usage
patterns, the global index is based on a single
consumption pattern across all regions. As Figure
1.16 shows, the global average price for core banking
services in the 25 countries was €86 in our study for
2007. Taking a constant subset of countries from
2006 to 2007, the price dropped slightly, by 0.5%.
FIGURE 1.16
Global Profile Prices, 2007
Average price of day-to-day banking services, by geographic region, 2007 (E)
140
120
116
101
100
80
100
Average
€86
75
60
40
20
0
Europe eurozone
Europe non-eurozone
North America
Asia Pacific
21
The eurozone recorded the lowest price for core
banking services this year, with an average price
of €75. In Europe non-eurozone, the average price
was €101. Despite these price-level differences,
prices in both European regions were lower than
in 2006, down 1.8% in Europe eurozone and
non-eurozone (see Figure 1.17).
The Asia Pacific price level was the highest
recorded this year, at €116, but included two new
countries—India and Japan. Using instead a constant
2006-2007 subset of countries, prices increased by 7.2%.
Particularly in Australia, banks are raising fees on
traditional accounts to encourage customers to
switch to packaged transaction accounts.
In North America, the average price was €100,
increasing by 2% over 2006 due mainly to rising
prices in Canada, particularly in payments.
NEW THIS YEAR: PACKAGE ANALYSIS
A trend towards packaged offers is occurring in most
retail banking markets, and this year we analysed both
the content and value of packages.
Packages are a mix of products and services, containing
a fixed quantity of each. Consumers pay once a month,
or each year, instead of paying a fee each time they
use a banking product or service. We limited our
analysis to seven countries where packages are
widespread. These include Austria, Belgium, Germany,
Italy, Poland, and Slovakia, where more than 75%
of customers buy packages, and France, where
approximately 50% purchase bundled products.
We asked country teams to research the three banks
with the largest market shares in their country, and to
determine the price and exact content of each bank’s
best-selling package.
Even if regional price levels seem relatively close to
the global average, important differences remain
within each region and within each country.
FIGURE 1.17
Evolution of Global Profile Prices, 2006-2007
Average price evolution, 2006-2007 (%)
8%
7.2%
7%
6%
5%
4%
3%
2.0%
2%
1%
0%
-1%
-2%
-1.8%
-1.8%
Europe eurozone
Europe non-eurozone
-3%
22
North America
Asia Pacific
Package Content Analysis
As noted at the outset in Figure 1.18, the products
and services in the WRBR pricing index are labelled
as “in-scope”. Packages, however, often include both
these in-scope products and others -“out-of-scope”that are not included in the WRBR pricing index.
To provide an accurate picture, our package analysis
includes both in-scope and out-of-scope products
and services.
As Figure 1.19 illustrates, an average of 49% of
the in-scope products and services are included in
the seven countries’ packages. Packages in Germany,
Belgium, and Austria cover the most in-scope products,
while in Italy, Poland, Slovakia, and France, packages
cover the fewest in-scope products. Account management
was the best-covered category, with current account,
online banking, and call centre services included in
almost all packages. Except in France, exceptions
handling was the least-covered category.
FIGURE 1.19
Package and WRBR “In-scope”
Products and Services
FIGURE 1.18
WRBR
“In-scope”
Package

Account Management
Cash Utilisation
Exceptions Handling
Payments
“Out-of-scope”
Proportion of WRBR In-scope Products Included in Packages (%)
67%
60%
53%
49%
Average
49%
44%
Germany
Belgium
Austria
Italy
Poland
37%
36%
Slovakia
France
23
When looking package content, two types of
product mixes emerge, as illustrated in Figure 1.20.
In Germany, Belgium, and Poland, packages contain
exclusively in-scope products. For the other countries,
out-of-scope products are also included in packages,
either in low proportions, as in Austria and Italy
(below 30%), or in a higher proportion, as in Slovakia
(50%) and France (70%).
Out-of-scope products are very diverse, and include
printed statement self-service in Austria, long-term
fixed-price guarantees in Italy, transactions at points
of sales terminals or assigned overdraft limits in
Slovakia, and discounts on overdraft interest and
payments insurance protection in France.
FIGURE 1.20
Proportion of “In-scope” and “Out-of-scope” Products and Services Included in Packages (%)
100%
10%
90%
28%
80%
50%
70%
70%
60%
50%
100%
100%
100%
90%
72%
40%
Out-of-scope
Products & Services
30%
50%
In-scope
Products & Services
20%
30%
10%
0%
Germany
24
Belgium
Austria
Italy
Poland
Slovakia
France
Package Value Analysis
When marketing their packages, banks highlight
the price savings consumers will achieve by buying
a package of products. To evaluate a package’s value
to the consumer, we considered both its in-scope and
out-of-scope products and services.
We calculated two prices for this set of products,
as illustrated in Figure 1.21. P1 denotes what
consumers would pay if they bought all the products
independently — that is, the price a local active user
would pay for the package’s in-scope products and
services (1), plus the price for its out-of-scope products
(3). P2 corresponds to the price the consumer would
pay for a package (2) plus the price of the in-scope
products and services not included in the package
(4). The difference between the two is the discount
a consumer receives by purchasing the package.
FIGURE 1.21
Discount between Prices Paid with and without Package for “In-scope” and Package Products
Discount created
by the package
Price of the “Out-of-scope”
Products of the Package (3)
Price of “In-scope” products
not included in the package (4)
P1: Total Price paid
without package
Pricing Index
(Price for “In-scope” Products
paid by the local active user) (1)
Package Price (2)
P2: Total Price paid
with package
25
Figure 1.22 provides the result of the discount
expressed as a percentage of P1 (in Figure 1.21)
for all the sample countries except Germany. We
have excluded this country because most German
banks do not offer unbundled prices for their
current accounts, and without unit prices, we
could not compute the discount.
Package discounts averaged 23% below the price a
consumer would pay if buying the same products and
services separately. As Figure 1.22 illustrates, this
discount varies by country, and ranges from a small
fraction in Poland to 50% in Italy.
When buying packages, depending on the country,
customers both receive non-core banking products and
benefit from relatively high discounts, or the discount
is low. When comparing these discounts to package
content, indicated in Figure 1.20, countries with the
lowest proportion of out-of-scope products and services
receive the smallest discounts. Comparing figures 1.20
and 1.22 indicates that Austria, Belgium, and Poland
fall into this category. In Italy, Slovakia, and France,
where packages contain the highest proportion of
out-of-scope products, consumers receive the largest
discounts. In these countries, however, consumers
buying the package might not use these out-of-scope
products very often.
FIGURE 1.22
Discount Created by Packages, by Country, in 2007 (%)
0%
-2%
-5%
-10%
-15%
-12%
-10%
-20%
Average
-23%
-25%
-30%
-29%
-35%
-34%
-40%
-50%
-50%
Belgium
26
Austria
Italy
Poland
Slovakia
France
Pricing Index
Conclusion
On a global scale, the price for core banking services,
based on the local active customer profile, was €77
for our 2007 study, a decline of only 0.3% from 2006.
Nevertheless, this global stability hides price variations
between countries and geographic areas. The price in
Spain, in particular, dropped sharply.
In the SEPA (or eurozone) area, prices for electronic
payments decreased by 3%, but are still 21% higher
than in the rest of the world. Since the SEPA effort is
promoting transparency and convergence, retail banks
are likely to continue to reduce prices for electronic
payments products.
From a product and service perspective, a few trends
are occurring. For the second consecutive year, banks
are actively trying to redefine their customers’ touch
points, and directing them towards automated channels
for common operations and away from branch
interaction except for more advanced services. Many
banks have raised their fees for operations at desk,
and cut fees for online banking and call centre services.
It was not surprising that exceptions handling, which
is usually subject to the biggest price variations, increased
the most in 2007.
Packaged offers are being sold in the countries we
study annually for our World Retail Banking Reports.
This year's analysis highlighted that 49% (about half)
of the in-scope or core banking products and services
are included in packages. Countries where packages
contain out-of-scope products offer consumers the
highest discounts, but in these countries, consumers
buying a package might not use the out-of-scope
products very frequently.
Our results indicate that pricing strategies for
day-to-day banking are less a means banks are using
to increase revenues than a way to change consumer
behaviour. Banks naturally want consumers to move
towards the most cost-effective solutions, encouraging
them to use remote channels and discouraging their
use of desk operations and branches in general.
Banks in the eurozone typically price in a much
narrower range than banks in the other regions
surveyed. And the trend towards convergence
is confirmed.
27
Transforming
Operating Models in Retail Banking
MAJOR FINDINGS
1.
The situation today: What retail banks’ operating models look like
Retail bank top managers set three primary objectives for transforming their operating
models: increasing revenue growth, improving customer service, and cutting costs.
Operating models vary greatly, due largely to each retail bank’s market maturity. Banks tend
to adopt more global models for payments, specialised financial services, and mutual funds.
Less than 10% of the banks we studied have a global operating model today. IT and
management seem to be the first levers that retail banks use to globalise their models:
– Today, retail banks’ governance is partly driven on a global scale—while only 41% of the
international banks have a global retail manager, most retail banks have set up global
management tools.
– Only 28% of the retail banks in our study have developed a global strategic marketing
approach for some products (primarily mortgages and mutual funds).
– IT organisation is halfway through globalisation, with 59% of the retail banks we studied
consolidating some of their IT systems at the cross-country level.
– Consolidation of back offices nationally is currently practiced by 60% of the banks surveyed,
but only 41% of the international banks have consolidated on a cross-country basis.
– In our sample, 39% of the banks have consolidated support functions at the cross-country
level (mainly treasury and procurement functions).
– Of all the retail banks we surveyed, 58% distribute products from other financial institutions
(“open-finance”).
Back offices and IT functions are partly outsourced by more than half of the retail banks we
studied, while support functions are much less-frequently outsourced. Outsourcing growth
will come mainly from retail banks that already outsource some activities and plan to enlarge
the proportion of outsourced staff.
Today almost half of retail banks we examined have adopted offshoring practices,
essentially in back offices and IT functions. India outstrips all other countries as the
preferred provider of offshored business processes.
There is no correlation between a retail bank’s level of globalisation and its cost/income ratio.
28
2.
The situation in five years: What drives retail banks’ operating model transformations
and what they will look like in five years
Four main drivers will lead retail banks to transform their operating models: Stock market and
competitive pressures, regulation, increasing use of the Internet, and Web 2.0 technologies.
Retail banks will increasingly globalise their operating models over the next five years,
with two-thirds of them targeting either what we define as an “intermediate” or “global”
operating model.
Retail banks will transform their models across all dimensions; however, IT globalisation will
remain their priority:
– IT globalisation appears to be the most important transformation trend for the next five years,
with more than 90% of the banks we interviewed willing to have a common architecture and
modular application suite and a ready-to-go approach to IT implementation.
– Back offices are expected to be further consolidated at a cross-country level. Our findings
indicate that more retail banks in five years (increasing from 41% to 67%) will be focusing on
cross-country consolidation.
– More than 50% of the banks expect to have global marketing practices within five years,
whereas only 28% have them today.
– Other major changes will occur in the development of career management programmes for
international managers (rising from 55% to 77%) and the consolidation of support functions
at the cross-country level (rising from 39% to 66%.)
Outsourcing growth will come mainly from retail banks that already outsource some activities
and plan to enlarge the proportion of outsourced staff.
In the next five years, offshoring practices will largely expand for back offices, IT, and
support functions.
Top retail bank managers must focus on five key success factors to globalise their operating
models: developing international governance, ensuring consistency with market and product
strategies, investing upfront in IT transformation, building a very thorough HR vision, and
focusing on execution quality.
29
ADAPTING OPERATING MODELS
TO A CHANGING ENVIRONMENT
THE SITUATION TODAY: WHAT RETAIL
BANKS’ OPERATING MODELS LOOK LIKE
Most retail banks are seeking ways to transform their
operating models. They need to adapt continuously
to an environment that changes on a daily basis. They
must adjust to a long list of forces, including intensifying
market consolidation (both national and cross-border),
fast-growing economies in emerging countries,
competing with and for high-quality technical and
human resources at competitive costs in new markets,
continually changing consumer needs, technological
changes, new market regulations, and the pressure
of financial markets.
Retail bank top managers we interviewed set
three primary objectives for transforming their
operating models: increasing revenue growth,
improving customer service, and reducing costs.
Most managers in the retail banks we surveyed
did not name reducing costs as their first objective
(see Figure 2.4). Rather, 40% cited revenue growth
as their first objective. Improving customer service
was the first choice of 24%. Cutting costs (14%)
and increasing shareholder value (14%) were the
other two major first priorities that surveyed banks
selected. Banks rarely cited other objectives
(accelerating international expansion, improving
business responsiveness, developing cross-selling,
learning from new experience abroad, and benefiting
from outsourcing partners’ expertise) as high-priority.
Many ways of transformation exist, not all of which
promise increasing or optimal performance. To better
understand this, we focused our survey on two major
issues: (1) what retail banks’ operating models look
like today; and (2) what drives their transformation
and what these models will look like in five years.
Surveyed banks
We based our analysis on interviews conducted
all over the world at 50 multi-channel retail banks,
of which 41 are international–either regional (with
operations in several countries on one continent)
or multi-regional (with operations on at least two
continents). Total retail operating income of those
banks is €225 billion, and total assets amount to
€10,257 billion (see figures 2.1. to 2.3).
FIGURE 2.1
Breakdown of Surveyed
Banks’ Geographic Reach (%)
Local Banks
19%
Multi-Regional
Banks
32%
Regional Banks
49%
Source: Capgemini interviews with 50 surveyed
retail banks.
30
FIGURE 2.2
Operating models vary greatly, primarily due to
retail banks’ market maturity. International banks
rarely operate a single pure operating model, but
generally operate at least two models tailor-made
to the type of market in which they operate.
In mature markets—where cost optimisation
is often the first objective—they tend to develop
a cross-border integrated model. In emerging
high-growth markets, however—where acquiring
market share is key—they tend not to integrate
the local operating models, especially in cases
of recent acquisition. Banks that operate in both
types of market, meanwhile, tend to structure
their organisations accordingly by adopting
specific strategies for each market (see case
study on UniCredit).
Breakdown of Surveyed
Banks’ Size, in Operating
Income (%)
Below
€3bn Retail
Operating
Income
40%
FIGURE 2.3
Total Assets of Banks in Our
Panel, Breakdown per Region
of Origin (%)
Over
€8bn Retail
Operating
Income
19%
Between
€3bn and €8bn
Retail Operating
Income
41%
retail banks.
America
13%
Europe
63%
Asia-Pacific
and Africa
24%
retail banks.
CASE STUDY
UniCredit Group: An Operating Model
Aligned to Its International Expansion
EXPANDING INTERNATIONALLY WHILE
IMPROVING SUSTAINABLE GROWTH
UniCredit Group is a leading European banking
group with top positions in some of the richest
areas in Western Europe, including Bavaria,
Austria, and Northern Italy, which is a source of
Group stability. Through the merger of UniCredit,
HypoVereinsbank, and Bank Austria Creditanstalt
in 2005, the Group has become the clear leader in
the Central and Eastern European (CEE) banking
markets. In expanding its banking business to
the 17 CEE countries, the Group has focused
on retail banking in 13 of them, and now serves
approximately 24 million customers from more
than 3,000 offices in that area.
UniCredit’s strategy has two main directions:
continue growth in the CEE region, and further
consolidate its domestic markets (Italy, Germany,
and Austria). In each of its markets, UniCredit is
growing quickly and meeting its main objectives
in terms of revenue and market-share growth.
Its model is also particularly efficient, with a
cost/income ratio of 52% in 2005.
ALIGNING ITS OPERATING MODEL TO ITS
INTERNATIONAL EXPANSION STRATEGY
A cross-border retail division. UniCredit Group’s
business approach is based on a divisional model.
The Group established a cross-border retail
division, with responsibility for Italy, Germany,
and Austria, and named a head of retail CEE and
Poland’s markets. This position is responsible
for overseeing the various local banks on a
management by objectives (MBO) basis. Within
the CEE, the Group has decided to “clusterize”
its organisation by pulling together three groups
of countries according to their market conditions
and maturity.
Tailored strategies. For each of these groups,
UniCredit adopts a tailor-made strategy. In the
Growth Strategy Countries (Romania, Ukraine,
Bulgaria, Serbia, Bosnia and Herzegovina, Hungary,
Slovenia, and Russia), the Group’s objective is to
acquire market share quickly and increase revenues.
In the Positioning Countries (Slovakia, Turkey, and
Czech Republic), its main objective is to increase
shareholder value to gain financial capability. In
the Champion Strategy Countries (Poland and
Croatia), the goal is to increase productivity
and efficiency by consolidating back-office
and processing operations.
IT. UniCredit has started to optimise its operations
across the entire CEE region, especially on the IT
side, by working towards a common IT architecture.
Consolidating IT systems presents some challenges,
given the cultural differences and the different
technical specifications developed over time by
each legal entity to provide products and services
to its local customers.
Support Function. UniCredit Group plans to set up
competence hubs and a unique support functions
platform at an international level.
Pilot approach. To manage market strategies
and new market-entry strategies, UniCredit uses
a pilot approach. Product development and sales
processes best practices are shared between
the CEE countries and the rest of the Group.
For example, in Bulgaria, consumer lending is
considered a successful best-practice case, and
UniCredit plans to roll out similar projects in two
other countries. In Italy, a pilot Internet banking
strategy is in progress, and this experience will
be used to bolster existing e-banking strategies
in the other countries.
31
For servicing their products, banks tend to adopt
more global models for payments, specialised
financial services (SFS) (which include consumer
credit, mortgage, and leasing), and mutual funds, than
for their other retail activities (savings, life insurance,
and property and casualty insurance). This applies
particularly to global strategic marketing and
back-office cross-country consolidation.
New entrants seem more able to design and
develop operating models highly adapted to their
market and product strategies. The ING Direct
case study illustrates this point well, as that bank
quickly succeeded in entering a mature market
with its online banking products.
Reasons retail banks cited for beginning to globalise
payments and SFS products first include regulatory
(e.g. SEPA), economic, technical (scale and skills),
and political (less resistance to change) factors.
Starting with these products also represents an
opportunity to learn about a new market before
launching full-scale retail activities. To minimise
risk, some European retail banks have created
a single organisation division that includes both
their international retail banking division and
their specialised financial services branch.
FIGURE 2.4
Three Main Objectives of Retail Banks’ Operating Models (%)
40%
Increasing revenue growth
24%
Improving customer service
28%
18%
18%
34%
86%
76%
Objective 1
14%
Cutting costs
38%
20%
Objective 2
72%
Objective 3
14%
Increasing shareholder value
0%
4% 6%
20%
Source: Capgemini interviews with 50 surveyed retail banks.
32
24%
40%
60%
80%
100%
CASE STUDY
ING Direct: Combining Global
Strategy and Systems with Local
Customer Focus and Operations
In 1995, ING Group decided to start retail banking
operations outside the Netherlands, next to its
already existing retail insurance and corporate
banking activities abroad. As the increased use
of direct channels opened up new opportunities
for financial services providers, ING Group
decided to export its direct banking expertise
(from Postbank) instead of building or buying
branch networks. The group chose Canada for
the pilot implementation, and it launched ING
Direct there as a stand-alone direct bank.
Following this initial entry, ING Direct grew quickly,
and by 2002 became a profit contributor to the ING
Group. Today, ING Direct has 17.5 million customers
in nine countries (Australia, Austria, Canada, France,
Germany, Italy, Spain, UK, and the US), with a client
retail balance of €195 billion.
Simple and straightforward strategy. ING Direct
achieved this goal by developing a strategy based
on a strong customer focus and a limited range of
simple financial products, offered primarily through
direct channels at very low cost and providing
good value for money to its clients:
Enter sufficiently large, mature markets with
developed infrastructure for direct banking.
Launch with a simple, transparent, and attractive
savings product to reach critical mass as soon
as possible.
Subsequently, introduce a second product—
generally mortgages—adapted to the specific
conditions of the retail market in the different
countries; currently, in addition to savings and
mortgages, ING Direct focuses on mutual funds
(mainly in Europe) as its key development
product.
Establish a unique global brand and an effective
marketing strategy, minimising the acquisition
cost per client.
Simplify products, services, and processes.
Reach large volumes per product to ensure
operational efficiency.
Strong performance. ING Direct delivers
outstanding performance on a set of quantitative
and qualitative key performance indicators,
including the following:
Compared to other direct banks, ING Direct
holds the number 1 position in all countries
where it operates. Compared to all banks, ING
Direct is always in the top ten (except in the US).
Brand awareness was built in a very short time
and exceeds 70% in most countries.
High customer satisfaction: on average, 94% of
the clients are likely to recommend ING Direct.
Operational cost to assets ratio (excluding
marketing costs) reached 42 basis points (bps)
by the end of September 2006. The cost base of
a traditional branch bank is more than five times
as high (250 bps).
ING Direct’s business units become profitable in
the fourth year, on the savings products only.
ING Direct generated a pre-tax result of €717
million in 2006 (€617 million in 2005).
Effective governance. One of the major factors in
this success lies in the governance based on the
“Fleet of Companies” principle, which allows ING
Direct to “think global and act local”. Every company
is free to determine the order of product introduction
based on its own market circumstances. The role of
the lean head office (70 people only) is to keep the
organisation’s strategic focus, provide strategic
guidelines, facilitate knowledge-sharing and best
practices, provide risk management and control,
and support the business units.
Enable customers to interact with the bank
through direct channels (Internet, phone, or mail)
with excellent customer service and convenience
(24/7 access).
33
Global knowledge sharing is encouraged
through membership of various councils (e.g.
General Management Council, Marketing Council,
Sales and Operations Council, and IT Council) and
an annual Global Conference where the top 200
managers meet.
HR vision. ING Direct’s HR vision is to focus
on competitive advantage, ensuring that efforts
are aligned, supporting and adding value to the
business focus and the customers. Business
management programmes are delivered to 400
middle managers each year, and employees
are encouraged to spend time working outside
their home countries.
Customer management. ING Direct uses a
mix of global and local approaches to customer
management in order to leverage its position. Each
country has its own customer approach, and the bank
aims at sharing experiences and best practices
learned in the different countries. ING Direct
administers a global customer satisfaction
survey, and each country additionally tailors
questions to its local customers.
A solid and standardised IT infrastructure. ING
Direct has a solid and stable IT infrastructure and
business application framework. Its reliability,
flexibility, and user-friendliness are key to ING
Direct's success. Every business unit runs its
own standardised IT infrastructure locally. The
IT Council agrees on a standard application
architecture as a whole, which is replicated
in other countries in slightly modified form to
match local requirements. As a result of these
policies, ING Direct can launch new products
quickly, and adjusting the conditions (such as
interest rates) of an existing product can be
done rapidly. To ascertain the robustness of
new IT solutions, first a Proof of Concept (PoC)
is established in one of the countries, and the
findings are shared with the others. Only when
a PoC is clearly successful are new solutions
implemented globally.
34
Core activities are neither outsourced nor
offshored. This principle is especially true for
operations and call centres that contribute to
developing a better customer experience.
Activities in Canada are even split between the
English-speaking and French-speaking regions.
Cross-country consolidations are rare. Examples
include the shared operations between Germany
and Austria (where language is not an issue) as
well as the investment centre for the European
business units.
New challenges. After many years of fast growth,
ING Direct has proven the quality of its strategy
and the soundness of its operating model. Today,
however, it faces new challenges. Competition
is one of them, with the largest banking groups
entering the direct banking industry seeking
market share. Another challenge is the current
interest rate environment, where yield curves
have flattened and central bank rates across
the globe have risen.
Future growth. In existing markets, growth will
be realised by exploiting the current product
portfolio, specifically savings, mortgages, and
mutual funds, and by broadening the product
range to fulfil customer needs, such as payments
accounts in Germany, Spain, and the US. ING
Direct will continue to expand its geographic
footprint, based on three key entry criteria: a
potential savings market, a large middle class,
and a highly developed Internet and telephone
infrastructure.
Building on the four key principles—meeting
and surpassing customer expectations, simplicity
and transparency, low-cost model, and its Fleet of
Companies concept—ING Direct’s ambition today
is to become “The world’s most preferred
consumer bank”.
FIGURE 2.5
Operating Model Characteristics
Globalisation
of Management
(Axis I)
Consolidation
of Marketing
(Axis II)
of Back Offices
(Axis IV)
Openness to the ecosystem
of Support
Functions
(Axis V)
Producer-Distributor Model
+Outsourcing of Back Offices,
IT and Central Functions
(Axis VI)
of IT Systems
& Functions
(Axis III)
We have developed six key characteristics that help
categorise retail banks’ operating models (see Figure
2.5). We used these characteristics to calculate a global
score for each bank (see scoring methodology in the
appendix). Taking into account the six characteristics
in Figure 2.5, we identified three types of operating
model categorised by their most prevalent
characteristics (see Figure 2.6):
Local: No global management of the retail bank;
very little or no cross-country or even national
consolidation of back offices, IT, or support
functions; little or no outsourcing; very few
or no partnerships with other banks to
distribute products.
Intermediate: Some management or marketing
efforts of the retail bank are driven on a global basis;
part of back-office, IT, and support functions are
consolidated at a cross-country level, with some
outsourcing; some products use an outsourced
and open-finance distribution model.
Global and open: Management and marketing
efforts are global; most of back-office, IT, and
support functions are consolidated at a crosscountry level, much of it outsourced; open-finance
distribution model for many products.
Less than 10% of the banks we surveyed have a global
operating model today.
A bank’s size and geographic reach correlate with its
operating model type. Multi-regional or large regional
banks (those with operating incomes above €3 billion)
have a large proportion (64%) of operating models
that fall into our intermediate classification. Global
operating models are only present in this category,
where they account for a low 12% (see Figure 2.7.).
All operating models might be found in a geographic
area. For instance, there is no single European retail
bank model. Nonetheless (and despite the limited
size of our sample), some geographic similarities
did emerge. For example, Swedish and Dutch retail
banks’ operating models are mostly intermediate or
global, while Japanese banks appear for the most part
to be minimally consolidated at a cross-country level
and very internal.
FIGURE 2.6
Distribution of Banks’ Operating Model Types (%)
Global
6%
Local
40%
Intermediate
54%
35
Today, retail bank governance (Axis I in Figure 2.5)
is partly global—41% of banks surveyed have a global
retail manager, and most already have some global
management tools in place (see Figure 2.8). Retail
banks are working at globalising their management
teams by creating tools that help them drive their
business on an international level. Among the
international banks in our survey, two-thirds have
set up global knowledge-sharing tools to capture
and exchange positive operations experience around
the world. Many banks, however, have not yet
industrialised these processes and are still in the
process of implementing them. Over half of the
international banks we studied have already
instituted career management policies for
their international retail managers.
FIGURE 2.7
Examples of global management practices. Some of
the banks in our survey have initiated one or more
of the following global moves:
Involving executives of acquired companies in
creating the new corporate vision, giving a clear
signal that integration did not end with the closing
of the deal.
Creating a distinct international retail business unit.
Investing in training to develop executives’
international outlook.
Ensuring the continuity of management to
guarantee the consistency and durability of
the company’s strategy.
Distribution of Operating Model Types across Bank Categories (%)
Multi-regional
and big regional
banks above €3bn
operating income
24%
64%
12%
Local
Small regional
banks below €3bn
operating income
31%
69%
Intermediate
Global
0%
20%
36
40%
60%
80%
100%
FIGURE 2.8
Global Governance and Management of Retail Banks Today (%)
(Percentage of international banks)
Global knowledge-sharing management
71%
International career management
55%
Global retail manager
41%
31%
Several managers with global functional responsibilities
FIGURE 2.9
Global Marketing Strategies and Global Client and Channel Management (%)
31%
A global KPI policy for customer satisfaction
One global channel model ready to
be implemented in each country
28%
Global strategic marketing for some products
28%
One global marketing segmentation model
ready to be applied in each country
One common client data structure/analytics/profiling
15%
10%
37
As indicated in Figure 2.9, only 28% of the
international retail banks surveyed have developed
global strategic marketing for some products (Axis II,
Figure 2.5); this is especially true for mortgages and
mutual funds. Less than a third of the retail banks we
studied had global channel models, and global client
management is not very advanced today, either. Many
retail banks are reluctant to globalise their marketing
strategies for all their products, preferring instead to
concentrate on a few. The banks we surveyed tend
to establish broad global marketing policies, while
allowing local branches to customise products
according to local needs. The adaptability of
a bank’s marketing approach is a key element
in its globalisation.
FIGURE 2.10
IT organisation (Axis III, Figure 2.5) is halfway into
globalisation. Of the fourty-one international banks in
our survey, nearly 60% have already consolidated their
IT systems at the cross-country level (see Figure 2.10),
and 40% have a common IT architecture, a modular
application suite, and a ready-to-go modular approach
to IT implementation.
IT Globalisation (%)
Cross-country consolidation
of IT systems
Ready-to-go modular approach
of IT implementation
40%
Common architecture and
modular application suite
40%
38
59%
Consolidation of back offices (Axis IV, Figure 2.5) is
well advanced on a national level. Of the banks surveyed,
60% have consolidated between retail networks and
specialised networks, especially for payments and
specialised financial services (consumer credit,
mortgages, and leasing). However, few international
banks in our survey (41%) had adopted cross-country
consolidation. Overall, of those retail banks, 88% did
so for payments, 63% for consumer credit, and 44%
for mortgages (see Figure 2.11).
FIGURE 2.11
Banks Consolidating Some or All of Their Cross-Country Back-Office Tasks, by Product (%)
Percentage of international banks reporting that some of their back offices are consolidated at a cross-country level
Payments
88%
Consumer credit
63%
Mortgage
44%
Leasing
38%
Savings – Mutual funds
31%
Life Insurance
31%
39
Many of the international banks surveyed (39%)
consolidate support functions (Axis V, Figure 2.5) at
a cross-country level. Most of these support functions
are shared with the rest of the bank’s divisions, and
not just retail. Treasury and procurement are the most
consolidated functions on a cross-country basis,
followed by property management and HR (see
Figure 2.12).
A small majority of surveyed banks (58%)
distribute products from other financial institutions
(“open-finance”), mainly life insurance, property and
casualty insurance, and mutual funds. A quarter of
the banks distribute some of their products through
other bank channels, mainly for mutual funds.
FIGURE 2.12
Support Functions Consolidation at a Cross-Country Level (%)
Percentage of international banks reporting that some of their support functions were consolidated at a cross-country level
Treasury
81%
Procurement
81%
Property Management
HR
40
69%
63%
There is no correlation between a retail bank’s level
of globalisation and its cost/income ratio. In analysing
our panel of banks, we looked for a relation between
a bank’s operating model type and its cost/income
ratio, but we found no evidence of such a link (see
Figure 2.13).
The absence of such a correlation is best explained
by two observations. First, several factors other than
the operating model have a major impact on a bank’s
economic efficiency, including the quality of its markets
and its commercial positions in those markets. Second,
as in any transformation program, the implementation
and execution quality of the operating model is as
important (if not more so) than its design. For
instance, in a European market, one bank enjoys
the lowest cost/income ratio despite having a
particularly decentralized organisation.
FIGURE 2.13
Operating Model versus Cost/Income Ratio
80%
60%
40%
Local
Intermediate
Global
Source: Capgemini analysis, 2007; bullet points represent the banks in the panel.
41
THE SITUATION IN FIVE YEARS: WHAT
DRIVES RETAIL BANKS’ OPERATING MODEL
TRANSFORMATIONS AND WHAT THEY WILL
LOOK LIKE IN FIVE YEARS
Four main drivers are convincing retail banks
to transform their operating models.
Stock market and competitive pressures push banks
to review their strategies and eventually change their
operating models accordingly. Analysts and investors
often express concerns about whether a single country
bank can survive and grow in one local market. Many
banks that have reached the limit of growth in their
home market tend to look outside. When doing so,
they need to ask what competitive advantage they
have over the local players in the foreign markets
they are thinking of entering. To start with, they
can examine their home market operating model
to see what can be leveraged or transferred to the
new market. This self-examination sometimes
leads a bank to rethink its operating model.
Competitive threats driven by the stock market can
pressure banks into changing their operating models.
The threat of US entrance into Nordic markets, for
example, might have been a key force in convincing
Nordic banks to consolidate their operations at the
cross-country level.
Regulation also strongly drives retail banks’ operating
models. In the eurozone, the creation of a Single Euro
Payments Area (SEPA) by 2010, in which retail
payments in euros will be treated everywhere as
domestic payments, will have a major impact on
a bank’s strategy and organisation. To maximise
revenues, banks will need direct access to 300 million
end-customers in 29 countries across the SEPA area.
Banks will have to rethink their payments strategies
and decide on several key strategic options—such as
insource, outsource, or offshore payments processes.
Multi-country banks already have a definite advantage
in the SEPA world, benefiting from economies of scale,
consolidated platforms, and optimised processes.
In November 2006, China issued landmark rules
allowing foreign banks to offer a full range of retail
services to local customers, a liberalisation promised
as part of its 2001 entry into the World Trade
Organisation. The rules, which took effect on 11
December 2006, mark a historic step in the gradual
opening of the country’s financial sector. Facing
the potential new competition from foreign banks,
Chinese banks need to transform their traditional
decentralised operating model. The centralisation
is underway. Branches will function as a sales and
marketing channel, and provide face-to-face
customer service. Banking operations will be
42
centralised in back offices or shared service centres.
The ongoing key initiatives include realigning
customer-facing business units, streamlining
operational structures, enhancing and centralising
risk management and internal control, centralising
operation and financial management, and improving
employee incentive schemes.
As consumers conduct more financial services transactions
on the Internet, banks will need to transform their
distribution models. The Internet is transforming the
way clients buy financial products. It allows them,
from anywhere at any time, to compare offers and
prices very easily.
In Sweden, the UK, France, and Italy, 77% of on-line
banking clients use the Internet to get information
before buying a financial product. This relatively new
situation creates three main challenges for banks:
How can salespeople in the branches cope with much
better-informed clients?
How can banks capture the Internet’s flow of
consumers looking for financial products?
How can a retail bank compete with on-line brokers
and specialised financial services companies?
How should banks change their distribution
models? Should they reduce the number of
branches within their network? Should they
create call centres specialised by product to
support commercial websites?
Web 2.0 technologies will help banks build faster, more
flexible, and less expensive IT systems. Information
technologies are undergoing three key changes:
Service-oriented architecture: Architectures can be
more flexible because they are made of components
able to interact together, like a neurological system.
Open source: After the legacy era and the ERP era,
the open source era has begun. When banks want to
develop a software, they can find open source
components very easily at very low prices (or even
for free); once integrated, these components
represent approximately 70% of the software.
India: The last 30% of the software can be
developed by very efficient and low-cost IT skills
now available in India.
The case study on ICICI Bank is a good example
of technology’s impact on a bank’s operating model.
CASE STUDY
ICICI Bank: Using Technology
as a Differentiator and an Enabler
The Indian population increasingly needs core
day-to-day banking services, and the market’s
growth potential is enormous. India’s middleincome group was projected to grow by 320
million from 2003 through 2009. In parallel,
material consumption is developing, creating
credit needs and potential growth for retail
banking.
ICICI Bank is the largest private-sector bank in
the country. It is a market leader in life insurance,
mutual funds, and loans. With a 30% market share
in the retail credit business, it is the nation’s largest
retail financial creditor. For example, one in every
four cars sold in India is financed by ICICI.
The bank has transformed itself from a traditional
financier of projects to a very efficient retail bank.
With a total income of €3 billion in 2006, ICICI’s
retail division has a particularly low cost/income
ratio of 39.4 %, benefiting from emerging market
characteristics and leveraging the recent progress
in information technology. It has grown extremely
fast, from 100 employees in 2000 to over 25,000 in
2007, and its customer base has skyrocketed from
3,000 in 1995 to 15 million today.
Focus on IT and innovation. Mr. Vaidyanathan,
executive director, ICICI Bank Ltd., says the success
can first be attributed to macro-economic factors,
the buoyancy of the Indian economy in the past few
years, and by ICICI’s innovative use of technology.
ICICI’s IT systems have no mainframe and are highly
flexible. The resulting lower cost of ownership
represents 15% to 20% of mainframe-based
systems. Technology has been used both as a
differentiator to transform delivery channels and
as an enabler to improve back-office efficiency,
processing, and internal management systems.
All this could not have worked if the customer had
shown a reluctance to the use of new technology.
“The customer in India definitely surprises you with
his willingness to use new technology … provided
the offer is clearly explained”, he said. “Looking
ahead, the opportunities in India are simply endless.
Over 70 million jobs will be created in the next five
years … banks can make the most of it by staying
ahead through innovation.”
The other key reason for this bank’s success is
its focus on innovation: ICICI Bank always looks
at forward-thinking practices, whether in service,
distribution models, or emerging opportunities.
Multi-channel delivery network. ICICI has
developed an efficient commercial delivery
network. Technology-enabled delivery channels
have helped the bank scale up quickly, both by
maintaining a very low-cost structure and gaining
strong market share. ICICI has succeeded in
moving customers’ routine transactions to the
Internet, ATM, call centres, and mobile networks,
and has moved non-routine transactions and
cross-selling activities to its branches. Less
paperwork has helped the bank speed up its
processes and provide customers convenience
and fast service. To adapt to the immense
geographic Indian market, ICICI calls itself “a
reachable bank”, saying the bank can be reached
anywhere, anytime. It offers home delivery of
products through over 22,000 direct sales agents.
Efficient back-office and processing operations.
These are managed in central and regional
processing hubs equipped with banking software
and high-end technology infrastructures. To
accommodate the rise in transactions from the
rapidly increasing customer base, ICICI has
improved its turnaround time and established
economies of scale by industrialising its processes,
such as account openings and cheque clearings.
Its IT system handles 2.5 to 3 million transactions
per day, is scalable to 8 million, and is a key
element of ICICI’s efficiency.
ICICI’s next goal is to go global. After securing
its position in the Indian market, ICICI’s next main
objective is to accelerate its international expansion.
It currently has a presence in the UK, Canada,
Russia, Singapore, Bahrain, Hong Kong, Sri Lanka,
and Dubai. When entering a new country, ICICI’s
primary differentiation point lies in its ability to
outsource effectively to India. Basing middle-office
and back-office teams in India gives the bank a
huge cost advantage over its local competitors.
The sharing of technology platforms based in
India adds to this saving.
The bank’s expansion strategy is decided on a
case-by-case basis, and depends on the situations
and regulations in the countries the bank plans to
enter. Organic growth is the usual approach, except
in Russia, where the regulators require two years of
operations in the country before granting permission
to accept retail deposits. An acquisition in Russia
gave ICICI Bank a two-year head start.
43
Retail banks will increasingly globalise their
operating models over the next five years, and
we expect two-thirds of them to adopt either an
intermediate or global model (see Figure 2.14).
HSBC provides an excellent example of a global
bank model (see HSBC case study).
Banks will focus on transforming their models
along four main axes: IT globalisation, back-office
consolidation, global marketing, and global
management (see figures 2.15 and 2.16).
IT globalisation appears to be the most important
transformation trend for the next five years. More
than 90% of the banks we surveyed were willing to
have a common architecture, and 82% would accept
a modular application coupled with a ready-to-go
approach to IT implementation. This represents a
strong mandate for change, as only 40% have such
IT configurations today. IT transformations will be
critical to transforming other areas of the banks’
operating models over the next five years.
FIGURE 2.14
Global management. Over the next five years,
international managers will be offered global career
management programmes by 77% of the banks we
studied (up from today’s 55%).
Global Marketing. While only 28% of surveyed banks
have global marketing practices today, more than 50%
expect to have them in five years. The main changes
will occur in the implementation of global strategic
marketing, common data structure/analytics/profiling,
and client segmentation models ready to be applied in
each country.
Projected Distribution of Operating Model Types in Five Years (%)
Local
26%
Global
32%
Intermediate
42%
44
Cross-country consolidation of back office and support
functions. Based on our research, we expect further
back-office consolidation of core operational processes
at the cross-country level; 67% of the retail banks we
studied expect to consolidate these processes over
the next five years, compared to only 41% that enjoy
consolidated processes today. The same evolution is
expected for the cross-country consolidation of support
functions, with 66% of the international retail banks
surveyed expecting to do it in five years, while 39%
do it today.
FIGURE 2.15
Operating Models Today and Bankers’ Projections for Five Years from Now
Globalisation
of management
(Axis I)
5
4
Producer-distributor
relations and outsourcing
(Axis VI)
Globalisation
of marketing
(Axis II)
3
2
1
— Today
— In five years
Globalisation of
IT systems and functions
(Axis III)
Support functions
consolidation
(Axis V)
Back-office
consolidation
(Axis IV)
FIGURE 2.16
Projected Major Changes in Five Years in Global Management, Back Office, IT, Support Functions, and Global Marketing (%)
90%
90%
Today
82%
In five years
77%
71%
67%
66%
55%
51%
46%
40%
40%
41%
39%
38%
28%
15%
10%
Common IT
architecture
and modular
application
suite
Ready-to-go
modular
approach
to IT
implementation
Back-office
consolidation
at a crosscountry level
Support
function
consolidation
at a crosscountry level
International
career
management
Knowledge
- sharing
management
Global
strategic
marketing
One global
marketing
segmentation
model
One common
client data
structure/
analytics/
profiling
45
CASE STUDY
HSBC: A Global Operating Model
in Retail Banking
HSBC has transformed itself from a large Asian
commercial bank to a diversified global financial
services provider. Its expansion strategy has been
through a mix of organic growth and strategic
acquisitions, always with the desire to establish
a global brand with local understanding.
HSBC’s governance relies on two main
characteristics: the training of international
managers and the continuity of its leadership
team. HSBC operates an HR programme that
manages expatriate careers of three-year
assignments in challenging markets. Its stated
aim is to create HSBC elite bankers with a strong
esprit de corps. As one executive puts it, they form
the “organisational glue” of the company. These
international managers constitute the Global
Processing Team that implements dedicated
corporate governance to achieve both strategic
and tactical objectives on a global scale.
One of HSBC’s great strengths is management
continuity. The top 35 executive directors and
general managers between them have 800 years
of experience at the bank.
HSBC’s retail banking is structured in Customer
Group divisions: Personal Financial Services
(including Consumer Finance), and Commercial
Banking, which is managed globally and locally
(76 countries). The group level is responsible for
driving middle-term and long-term strategic
orientations in any field—such as customer
propositions, use of technologies, and core
processes—and ensuring that these strategies
are fully implemented locally.
46
Branding strategy aims at communicating
HSBC’s capacity to be a global bank that
understands local differences. When integrating
new companies, HSBC preserves local branch
networks and the client base. In 1999, HSBC
wished to be seen as a uniform, international
brand name, and launched one logo and one
slogan: “The world’s local bank”.
Today, local marketing activities are implemented
locally, and the company’s product portfolio varies
depending on the local market. Marketing initiatives
and advertising campaigns have been significant in
driving the brand’s increasing presence in emerging
markets and supporting new, local products.
Nevertheless, customer propositions (in terms
of customer experience) are designed globally by
teams representing the group and country levels.
Several product lines are designed globally, such
as asset management, insurance, and cards, and
for each of those, one country can be designated
as the “champion” that elaborates it.
For commercial banking, segmentations are
homogeneous around the world, but for personal
financial services, customer segmentations are
generally local (with commonalities more and more
developed for commercial and value segmentations).
One segment, however—people with financial
needs in more than one country—is treated in a
very global way. HSBC provides these clients with
a single customer proposition called HSBC Premier
International Services. When people are moving
abroad, HSBC can set up their accounts in the
new country or provide them with credit facilities
at a similar level they enjoy in their home country.
This is done through 22 International Banking
Centres operating with exactly the same processes
and tools. In the front offices, dedicated HSBC
Premier Centres offer exactly the same look
and feel.
IT. Three years of sustained investment in
technology have resulted in HSBC’s HUB IT system,
a global, proprietary system built in-house, with
key functions combined into one IT platform. To
develop solutions for HSBC’s group offices, HSBC
Software Development (India) Private Limited has
established a software centre. Today, 42% of
HSBC’s IT development work is done in low-cost
offshore centres like these.
“Global service centres” for back-office
operations. HSBC has these centres in six
countries (India, China, Sri Lanka, Malaysia,
Philippines, and Brazil) to manage business
tasks, mainly data processing and call centre
inquiries. In Sri Lanka, another 3,000 people
work in a call centre to handle inbound calls
from HSBC’s UK customers. In addition, HSBC
has wholly owned business process outsourcing
subsidiaries, notably HSBC Electronic Data
Processing India (HDPI), based in Kolkata
and employing 8,000 people.
Support functions have remained substantially
unchanged, although some positions at London’s
Canary Wharf head office have been transferred
overseas to Cyberjaya, Malaysia. For all components
of its operating model, HSBC plans to double the
size of its offshore operations to 25,000 employees
by the end of 2007 to help reduce costs.
As a result, although having a single branding logo
and working to set up fully global and rationalised
back offices and IT systems, HSBC still aims to
benefit from a local public image at the local level.
47
FOCUS
Trends in Outsourcing and Offshoring
in Retail Banking
Like many other industries, retail banks
consider outsourcing and offshoring as key
ways to transform their operating models. While
outsourcing involves transferring or sharing the
management control and decision-making of a
business function to an outside supplier or partner,
offshoring concerns the relocation of business
processes from one country to another. Several
objectives are at stake, including cost savings,
customer service improvements, economies
of scale, access to skills, and business
responsiveness.
FIGURE A
Among the banks we surveyed, 77% outsource
and 47% offshore at least one function of their
operating model—from their back-office, IT, or
support areas.
Outsourcing in Retail Banking Today and in Five Years (%)
65%
58%
65%
58%
40%
Today
In five years
27%
Back offices
48
IT
Support functions
OUTSOURCING
Back-office and IT functions are partly
outsourced by more than half the retail
banks in our study, while support functions
are outsourced much less frequently (see
Figure A). Based on our survey results, retail
banks appear unwilling to change their current
outsourcing practices. Our findings indicate that
banks not outsourcing today are unlikely to do
so in the next five years. Nevertheless, support
function outsourcing practices will grow rapidly
(by 13% over the next five years) (see Figure B).
FIGURE B
In the retail banks we surveyed, approximately
one-third of the IT and support function staff
is outsourced. Over the next five years, this
proportion for IT will jump to 52%, and the rate
for support functions will also increase, but more
slowly. Outsourcing growth will come mainly from
retail banks that already outsource, by enlarging
the proportion of their outsourced staff.
Retail Banks with Staff Outsourced Today and Five-Year Projections (%)
Percentage of banks that outsource IT and support functions today and that will outsource IT and support functions in five years
52%
44%
Today
39%
In five years
34%
IT staff outsourced
Support functions staff outsourced
49
Back offices. Our findings indicate that payments,
mortgages, and life insurance products are the most
frequently outsourced today, and they will remain so
over the next five years (see Figure C). Mortgages
will grow fastest, rising from 33% to 48% among
banks we surveyed over the five-year period.
Administrative tasks will be the most affected over
the next five years, while client-facing tasks, which
are the hardest to rationalise and industrialise, will
naturally be outsourced the least.
IT functions. For banks outsourcing their IT
functions, development, maintenance, and
operations are usually the primary concerns,
and no major changes are expected in the
next five years (see Figure D).
Support functions. For banks outsourcing
their support functions, HR (payroll), property
management, and procurement are and will be
the three most outsourced functions (see Figure E).
Outsourcing of financial functions (accounts payable
and accounts receivable) will grow fastest over the
next five years.
FIGURE C
Back-Office Outsourcing in Five Years
Percentage of banks that will outsource their back offices in five years
Payments
58%
Life insurance
52%
Mortgage
48%
Property and casualty insurance
42%
Savings – mutual funds
29%
Consumer credit
29%
Savings – other
Leasing
50
26%
13%
FIGURE D
IT Functions Outsourcing in Five Years
Percentage of banks that will outsource their IT functions in five years
IT operations
58%
IT maintenance
68%
IT development
68%
FIGURE E
Support Functions Outsourcing in Five Years
Percentage of banks that will outsource their support functions in five years
58%
HR
Property management
47%
Procurement
42%
Accounts Payable
26%
Accounts receivable
26%
Treasury
16%
General ledger
16%
51
FOCUS ON OFFSHORING
Today almost half the retail banks we studied have
offshoring practices, mostly in back-office and IT
functions. In the next five years, these practices
will largely expand whatever the function. In the
future, retail banks expect to have a substantial
portion (approximately one-third) of their IT and
support function staff offshored. Offshoring will
grow rapidly, especially in IT (see Figures F and G).
Back offices. Back-office offshoring in our
surveyed banks primarily concerns payments,
consumer credit, and leasing products (see
Figure H). Mortgages will also be involved in
five years. Administrative and network-facing
tasks are the most often offshored tasks,
while client-facing tasks are much less
frequently offshored.
FIGURE F
Offshoring in Retail Banking Today and Banks’ Five-Year Projections (%)
48%
44%
38%
29%
23%
Today
In five years
13%
Back offices
52
IT
Support functions
FIGURE G
Average Proportion of IT and Support Functions Staff Offshored, Today and in Five Years (%)
Percentage of banks that offshore IT and support functions today and that will offshore IT and support functions in five years
44%
40%
38%
Today
32%
In five years
IT staff offshored
Support functions staff offshored
FIGURE H
Projected Back-Office Offshoring in Five Years (%)
Percentage of retail banks that will offshore their back offices in five years
Payments
67%
Consumer credit
62%
Mortgage
38%
Leasing
33%
Savings – mutual funds
33%
Savings – other
33%
Life insurance
24%
Property and casualty insurance
24%
53
IT. When offshoring IT, development is almost
always the first to go (85% in our sample), with
maintenance functions second (approximately
67%) and operations third (41%) (see Figure I).
IT functions are most often outsourced to India
(see Figure J).
Support Functions. In support functions, retail
banks most often outsource accounts payable,
HR (payroll), and accounts receivable, and this
trend is likely to continue for the next five years
(see Figure K).
OBSTACLES AND KEY SUCCESS FACTORS
When outsourcing and offshoring any functions,
retail banks must be cautious. Some of the obstacles
our survey revealed include rejection by employees
and local management; bad communication on the
project; unfavourable political, legal, and social
environments; overestimation of the partner’s ability
to execute the required job; unavailability of key
people with a trans-national mindset; and cultural
and language issues. To minimise outsourcing or
offshoring obstacles, retail banks need to rationalise
their processes before exporting them.
India outstrips all other countries as the preferred
provider of offshored business processes, and this
will also be true in five years. India’s strength in
delivering solutions and services to the financial
services industry is the result of several factors:
labour arbitrage, staff and infrastructure scalability,
lower costs/usage, skilled workforce (language
and qualifications), availability of staff qualified
with financial degrees (accountants, chartered
accountants, MBAs in finance).
FIGURE I
IT Offshoring in Five Years
Percantage of retail banks that will offshore their IT functions in five years
IT operations
IT maintenance
IT development
54
41%
67%
85%
FIGURE J
Where IT Functions Are Offshored Today
Percentage of banks that offshore IT functions, by location of their use
Different continent
14%
India
51%
Same continent
21%
Border countries
14%
FIGURE K
Support Functions Offshoring in Five Years
Percentage of retail banks that will offshore their support functions in five years
Accounts payable
91%
Accounts receivable
73%
HR
64%
General ledger
55%
Treasury
36%
Procurement
36%
55
Transforming Operating Models in Retail Banking
Conclusion
Most of the retail banks we studied want to develop
more global operating models over the next five years.
But will they succeed? Based on what we have learned
in studying the marketplace, retail banks’ top managers
must focus on five key success factors to achieve
global reach.
A very thorough HR vision will also be required. Operating
model transformation is tightly linked to HR
management, quantitatively and qualitatively (skills,
cultures, and languages), and this will become even
more important as the spectrum of outsourcing and
offshoring solutions broadens.
International governance is a key enabler. A bank with
a global retail structure, knowledge-sharing values and
practices, and a leadership team with an international
mindset and exposure is better armed for globalising
its operating model. For more and more retail banks
today, one component of success lies in creating a
specific top management function in charge of defining
the industrialisation strategy and steering the transversal
industrialisation process.
Quality of execution will make the difference. Success
will depend on top management involvement in the
different transformation phases, the availability of
operational managers with a trans-national mindset,
and continuous communication inwards and outwards.
Building a dedicated cost and performance measurement
system for the operating models will also be essential.
Retail banks with clear long-term strategies will be able
to target the right operating models. There is no single
“winning” global operating model. Some banks might
develop an operating model slightly customised
according to local requirements, while others set up a
smart combination of two or three distinct models,
clearly distinguishing between the mature and
emerging markets it serves. In any case, consistency
between the chosen models and the product and
market strategies is a must.
IT transformation will become even more critical. As
many new opportunities emerge thanks to Web 2.0
technologies, IT transformation (architecture, systems,
and functions) will clearly be the main step towards
operating model transformation, for back-office
cross-country consolidation, global knowledgesharing, global marketing practices, and so on.
56
Appendix:
Methodology
57
All comparisons between 2005, 2006, and 2007 were
made on the basis of:
A flat exchange rate: To compare price evolution
from 2006 to 2007 in euros, the currency of the
pricing index, without those figures being skewed
by exchange rate effects, we recalculated last year’s
prices for Europe non-eurozone countries surveyed
using 30 June 2006 exchange rates.
A same country scope: Countries that we added in
2007—Croatia, India, Japan, Romania, and South
Africa—are not included in the analysis comparing
2005, 2006, and 2007.
One frequency pattern: The consistency of the
comparisons was ensured by recalculating last year’s
local profile prices based on this year’s frequencies
of use.
For this fourth annual edition of the World Retail
Banking Report, we have continued to refine the
methodology used in previous reports and expanded
its coverage. Each of the 25 country teams contributed
to the dashboards (www.wrbr2007.com), the pricing
analysis, and the spotlight interviews.
Overviews of the national banking industry for each
country surveyed are presented in the dashboards. In
every country studied, the team identified the major
macroeconomic indicators, described the retail banking
environment, the type and size of players, the products
sold, and the main trends in the retail banking industry.
These insights have then been mapped in a detailed
and consistent format (see Figure A.2). This work
also helped us determine which banks to include in
the pricing index. Figure A.3 provides a complete
list of the banks surveyed.
As a consequence, the average recalculated prices for
the 2006 local profile is €76.9, compared to €76 in
the 2006 analysis.
PRICING INDEX METHODOLOGY
The main principles of our methodology remain the
same as for the 2006 study.
Some definition refinements have also been made.
In case of several possible choices in one product
category, we tried to weight the different products’
prices by their proportion of use. For instance, in
Sweden, prices for direct debit differ if ordered at
branch or through the Internet. The proportion of
direct debit done through both channels was estimated
to get a weighted average for the unit price. When it
was not possible to assume the proportion, the most
popular product was considered. In line with this
principle, in China, treatment of the credit card
has changed compared to the 2006 edition, since
it was not the most widespread product. To remain
consistent, we recalculated last year’s prices based
on these refinements.
The pricing analysis provided both local and global
views based on prices and frequency of use. We
calculated prices on the basis of usage patterns for
three kinds of user: less active, active, and very active.
To determine those three groups, we split the total
customer community as follows: the 20% adopting
the lowest consumption are called “less active users”,
the 20% consuming the most are “very active users”,
and the remaining 60% are the “active users”. Figure
A.1 (below) shows how local profiles vary by usage
pattern. In countries where consumer behaviour is
tracked, bankers were able to provide this data or refine
previous patterns; in other countries, local frequencies
were estimated by local retail banking experts.
FIGURE A.1
Examples: Local Profile Variations by User Type
Australia
Germany
Less Active
Active
Very Active
Less Active
Active
Very Active
5
24
52
0
4
8
Withdrawals at bank’s ATMs
0
36
60
8
16
24
Withdrawals at other banks’ ATM network
4
12
14
12
24
36
Account Management
Call Centre
Cash Utilisation
58
As in last year’s edition, package prices have been
considered for countries where they are widespread:
Austria, Germany, Poland and Slovakia.
The discrepancy is a statistical formula, corresponding
to the square of the standard deviation relative to the
mean value.
PACKAGE ANALYSIS METHODOLOGY
P2 = price of all products and services in buying
a package
= package price (2)
+ price for in-scope products not included in the
package (with local active user frequencies) (4)
P2 is then subtracted from P1 to establish the
discount created.
The discount created by the package was calculated
as follows (see Figure 1.21 – page 25):
P1 = price for all products and services without
buying a package
= pricing index value (price of the in-scope
products) for the local active user (1)
+ price for out-of-scope products included in
the package (with package frequencies) (3)
FIGURE A.2
Sample Dashboard: Japan
Sources: Japan Banking Association, financial statements; all figures are 2005 unless otherwise specified.
59
FIGURE A.3
Pricing Index Survey Sample: 180 Retail Banks in 25 Countries
Europe eurozone
Austria
Europe non-eurozone
Belgium
France
Czech
Republic
Croatia
Norway
Share of deposits 70%
BA-CA
Erste Bank
BAWAG P.S.K.
Sparkassen sector
Raiffeisenbanken
sector
Volksbanken sector
Fortis Bank
Dexia
ING Bank
KBC
Banque Populaire
BNP Paribas
Caisse d’Épargne
CCF HSBC
CIC
Crédit Agricole
Crédit Lyonnais
Crédit Mutuel
Société Générale
La Banque Postale
CSOB
CS
KB
GE Money Bank
HVB
OTP banka
Hypo Alpe Adria bank
SG-Splitska banka
Erste bank
Raiffeisenbank
Zagrebačka banka
Privredna banka
Zagreb
DnB
Nordea
Fokus
Sparebank 1 MN
Sparebank 1 SR
Sparebank 1 N-N
Germany
Ireland
Italy
Sweden
Switzerland
United
Kingdom
Deutsche Bank
Commerzbank
HVB
Saving Banks
Mutual Banks
Postbank
Dresdner Bank
AIB
Bank of Ireland
Permanent TSB
National Irish Bank
Ulster Bank
UniCredit
BancaIntesa
San paolo imi
MPS
BNL
Capitalia
Svenska
Handelsbanken
Swedbank
Nordea
SEB
Danske Bank
SkandiaBanken
UBS
CS
Cantonal Banks
Cooperative Banks
Other Banks
HSBC
RBOS
Barclays
HBOS
Lloyds TSB
The
Netherlands
Portugal
Spain
Poland
Romania
Slovakia
ABN AMRO
ING Bank
Postbank
Rabobank
SNS Bank
Fortis Bank
CGD
BCP
BES
Totta
BPI
MG
BBVA
SCH
La Caixa
Cajamadrid
Banesto
Banco Popular
Caixa Cataluña
Banco Sabadell
Bancaja
CAM
Bankinter
IberCaja
Unicaja
PKO BP
PEKAO
BPH
CitiBank
BRE
ING
Kredyt Bank
BZ WBK
BGZ
Millenium
Raiffeisen
HVB Bank Romania
Bancpost
CEC
Alpha Bank
Banca Transilvania
ING bank Romania
Raiffeisen Bank
BRD Groupe SG
Banca Comerciala
Romana
HVB Bank Slovakia
Slovenska Sporitelna
Tatra banka
UniBanka
Vseobecna Uverova
Banka
Ceskoslovenska
obchodni Banka
Dexia
Asia Pacific
Australia
China
Canada
USA
CBA
NAB
ANZ
Westpac
St George
ABC
BC
BOC
CCB
CMB
ICB
Minsheg
Shenzen
Pudong
BMO
CIBC
Desjardins
RBC
Scotia
TD
ABN AMRO
(La Salle Bank)
Bank of America
Citigroup
J.P. Morgan Chase
Sun Trust
U.S. Bancorp
Wachovia
Wells Fargo
HSBC
India
Japan
Standard Chartered
Bank
Punjab National Bank
Bank of Baroda
HDFC Bank Ltd.
ICICI Bank Ltd.
State Bank of India
Citibank N.A.
Canara Bank
Bank of India
Bank of TokyoMitsubishi UFJ, Ltd
Mizuho Bank, Ltd.
Sumitomo Mitsui
Banking Corp.
Resona Bank, Ltd.
Bank of
Yokohama, Ltd.
The Sumitomo Trust
and Banking Co., Ltd.
60
North America
Africa
South Africa
ABSA Bank Ltd
First National Bank
Nedbank Ltd
Standard Bk of SA Ltd
SPOTLIGHT SECTION – SCORING METHODOLOGY
We calculated a globalisation score based on answers
surveyed banks provided to a questionnaire. This score
provides a measure, for each bank, of its operating
model’s maturity stage, in terms of the globalisation
and internationalisation of its organisation; the
consolidation of its processes, functions, and
systems; and its openness to its ecosystem.
The score is built on six axes and measured according
to the following criteria:
Axis I—Governance: Existence of a global retail
manager, percentage of foreign members on the
bank’s executive board, existence of a specific career
management strategy for international managers,
existence of global knowledge-sharing management.
Axis II—Marketing: Existence of global strategic
marketing for some products, existence of a global
client segmentation model, existence of a common
client data structure, analytics, and profiling,
existence of a global key performance indicator for
customer satisfaction, existence of a global channel
model ready to be implemented in each country.
Axis III—IT Strategy and Organisation: Existence of
a common IT architecture and a modular application
suite, existence of a ready-to-go modular approach
of IT implementation, existence of an IT system
consolidated at a cross-country level, number of
IT functions consolidated at a cross-country level.
Axis IV—Back-Office Organisation: Number of
products for which back offices are consolidated at a
national level between retail and specialised retail
networks, number of products for which back
offices are consolidated at a cross-country level.
Axis V—Support Function Organisation: Number
of support functions consolidated between the retail
division and the rest of the bank, number of support
functions consolidated at a cross-country level.
Axis VI—Producer-Distributor Relations and
Outsourcing: Existence of an open-finance
distribution model (products produced by other
financial institutions distributed through the
bank’s network), number of products for which
back offices are outsourced, number of IT
functions outsourced, number of support
functions outsourced.
Each axis is scored on a scale of 0 to 5, with the total
score ranging from 0 to 30. Questions on offshoring
are out of scope for the scoring, and they are analysed
separately in the report.
61
About Us
ING
ING is a global financial services company of Dutch
origin with 150 years of experience, providing a wide
array of banking, insurance and asset management
services in over 50 countries. Our 115,000 employees
work daily to satisfy a broad customer base of individuals,
families, small businesses, large corporations, institutions
and governments. Based on market capitalisation, ING
is one of the 15 largest financial institutions worldwide
and in the top 10 in Europe.
ING is a major financial services company in the Benelux
home market. ING services its retail clients in these
markets with a wide range of retail banking, insurance
and asset management products. In our wholesale
banking activities we operate worldwide, but with
a primary focus on the Benelux countries. In the
United States, ING is a top 10 provider of retirement
services based on sales assets under management. In
Canada, we are the top property and casualty insurer
based on direct written premium. ING is a leading
direct bank with 15 million customers in nine countries.
In the growth markets of Asia, Central Europe and
Latin America, we provide life insurance. We are also
a large asset manager with assets under management
of more than EUR 500 billion. ING Real Estate is
the largest property company in the world based on
its business portfolio.
EFMA was formed in 1971 and gathers today more
than 2,000 different brands in financial services
worldwide, including 80% of the largest European
banking groups.
Visit www.efma.com
CAPGEMINI
Capgemini, one of the world’s foremost providers of
Consulting, Technology and Outsourcing services,
has a unique way of working with its clients, which it
calls the Collaborative Business Experience. Through
commitments to mutual success and the achievement
of tangible value, Capgemini helps businesses implement
growth strategies, leverage technology, and thrive
through the power of collaboration.
Capgemini employs approximately 68,000 people
worldwide and reported 2006 global revenues of
7,700 million euros.
With nearly 15,000 Financial Services professionals, over
900 clients worldwide and reputation for unparalleled
delivery, Capgemini is uniquely positioned to serve the
financial services industry. We help move businesses
forward with proven solutions in banking, insurance,
wealth management, compliance and risk management,
payments, leasing, asset management and business
process outsourcing.
Visit www.ing.com
THE EUROPEAN FINANCIAL MANAGEMENT
& MARKETING ASSOCIATION
The European financial management and
marketing association (EFMA) is the leading
association of banks, insurance companies
and financial institutions throughout Europe.
On a non-for-profit basis, EFMA promotes
innovation and best practices in retail finance
by fostering debate and discussion among peers
supported by a robust array of information services
and numerous opportunities for direct encounters.
62
Capgemini’s Retail Banking practice works side-by-side
with its clients to implement successful solutions in
Sales & Service Innovation, Customer Experience
Transformation, Branch Optimization, Multi-Channel
Management, Inbound Customer Marketing, and
Back-Office Scaling.
Visit www.capgemini.com/banking
Capgemini would like to particularly thank the following banks interviewed for
this report:
Abbey
ABN Amro
AIB
ANZ
BA-CA
Banca Marche
Banca Popolare di Milano
Banca Popolare di Sondrio
Banco Popular
Bancpost
Barclays Bank / Absa Bank Ltd
BCR
BNP Paribas
Citigroup
Crédit Agricole / Lukas Bank
DaimlerChrysler Bank AG
Danske Bank / NIB
Deutsche Bank AG
First National Bank
Fortis Bank
Glarner Kantonalbank
HPB
HSBC
Hypo Alpe-Adria-Bank
ICICI Bank
ING Group
ING Direct
KBC Group / CSOB
KeyBank
Mizuho Bank
NAB
Nordea
Rabobank
Raiffeisen Bank
Resona Bank
Scotiabank
SEB
Skandiabanken
Société Générale / Splitska Banca / KB
St George
State Bank of Mysore
Sumitomo Mitsui Banking Corporation
Sumitomo Trust Bank
Swedbank
TD
The Bank of Tokyo-Mitsubishi UFJ
The Bank of Yokohama
UniCredit / HVB
Wachovia
Westpac
We also thank the following people for collaborating to produce this report:
The Development Team for analysing, writing, and compiling the findings of
the report: Olivier Ducass, Frédéric Roux, Aurore Laflandre and Claire Guiraud.
World Retail Banking Report Executive Steering Committee for providing their
insights, industry expertise, and overall guidance: Patrick Desmarès, Bertrand
Lavayssière, Marion Lecorbeiller, and Felix Potvliege.
All our Local Survey Contributors.
© 2007 Capgemini. All rights reserved. No part of this document may be reproduced or copied in any form or by any
means without written permission from Capgemini.
Visit
www.wrbr07.com
For more information, please contact:
Capgemini – banking@capgemini.com
ING – nanne.bos@ing.com
EFMA – patrick@efma.com
For press inquiries, please contact:
marion.lecorbeiller@capgemini.com
nanne.bos@ing.com